2019 (9) TMI 1013 - HC - Income Tax

Addition u/s 41 or 28 - Disallowance of principal amount of loan waived off by the lender - one time settlement of loan with Mafatlal Finance Company Ltd., holding that the loan was acquired for acquisition/investment of capital assets as such its waiver cannot be termed as revenue receipt - HELD THAT - Loan was taken from acquisition of capital assets. Thus, the waiver of loan being waived off could not be termed as a revenue receipt. Thus, there is a concurrent finding of fact recorded on this count by the Authorities. During the assessment proceedings the AO had asked the Respondent to explain why the principal amount should not be offered to tax. Respondent had made submissions that for chargeability under Section 41(1) of the Act, there should have been actual allowance made in the assessment of the assessee in the earlier year. The Commissioner of Income Tax (Appeals) and the Tribunal followed the decisions of this Court in the case of Mahindra and Mahindra Ltd. vs. CIT 2003 (1) TMI 71 - BOMBAY HIGH COURT upheld by the Apex Court 2018 (5) TMI 358 - SUPREME COURT . The Court, on similar facts had held that on such waiver of loan taken on capital account, neither the Section 41(1) of the Act nor Section 28(iv) of the Act, are applicable. Thus, the question is no longer res-integra. No substantial question of law.

Summary

Issues:
Challenge to order by Income Tax Appellate Tribunal on loan waiver as revenue receipt.

Analysis:
The Appellant, a revenue entity, challenged the order of the Income Tax Appellate Tribunal, Mumbai, dismissing their appeal regarding the deletion of a loan waiver amounting to ?8,41,34,321. The relevant Assessment Year was 2008-09. The Respondent, engaged in investment activities, had obtained a loan from M/s. Mafatlal Industries Ltd. The Respondent entered into a one-time settlement with Mafatlal Finance Co. Ltd., resulting in the waiver of the loan principal amount. The Assessing Officer disallowed this amount as a revenue receipt, assessing the total income at ?12,33,34,300. The Commissioner of Income Tax (Appeals) upheld the Respondent's contention that the waived loan amount was not taxable under Section 28 or Section 41 of the Income Tax Act, 1961. The Tribunal dismissed both the Appeal of the Revenue and the Cross Objection of the Respondent, upholding the Commissioner's view.

The Counsel for the Appellant argued that the Assessing Officer's decision was correct and should not have been overturned. However, both the Commissioner of Income Tax (Appeals) and the Tribunal found that the loan was acquired for capital assets, making the waived loan amount non-taxable as a revenue receipt. The Authorities concurred that the loan waiver did not fall under Section 41(1) or Section 28(iv) of the Act. They relied on the decision in Mahindra and Mahindra Ltd. vs. CIT, which was upheld by the Apex Court. The Court found no error in the factual findings and concluded that the question did not raise any substantial question of law. Therefore, the Appeal was dismissed.